Buying your first home is an exciting and challenging process. You have to find the right property, negotiate the best deal, and secure a suitable mortgage. But how do you compare different pre-approval offers from lenders? Besides the interest rate and loan amount, what other factors should you consider? Here are some tips to help you make an informed decision.
Not all loans are created equal. There are different types of loans, such as conventional, FHA, VA, or USDA, that have different eligibility criteria, down payment requirements, and fees. For example, FHA loans are popular among first-time buyers because they allow a lower credit score and a smaller down payment, but they also come with higher mortgage insurance premiums. You should compare the pros and cons of each loan type and see which one suits your situation and goals.
FHA Has lowered their MI Insurance I find the lower rate they are given out ways the MI Insurance cost - There are also First time Homebuyer Programs in every State which offer many Grants (Income Restrictions) with no payback - They may be Portfolio Loans (Inhouse Mortgages) or State Programs that Banks underwrite -
The loan term is the length of time you have to repay the loan. Typically, loans are either 15 or 30 years, but there are also other options. The shorter the term, the higher the monthly payment, but the lower the total interest cost. The longer the term, the lower the monthly payment, but the higher the total interest cost. You should consider your budget, income stability, and future plans when choosing the loan term.
If you take a 30 year loan, you can cut down on the total interest you pay and shorten the life of your loan by making an extra payment every year, or by adding a little extra money every month to your payment that goes towards the principal balance of the loan. It’s a great way to not overextend yourself financially every month, while still having the option to pay down the loan sooner when you feel you have the available money.
Closing costs are the fees and charges that you have to pay when you finalize the loan. They can include appraisal, title, origination, escrow, and other fees. Closing costs can vary widely depending on the lender, the loan type, and the location. They can range from 2% to 6% of the loan amount. You should ask for a loan estimate from each lender, which will show you a breakdown of the closing costs and how they affect your monthly payment and cash to close.
You also can decide to go with a little higher rate and pay less and Get Back money for closing cost - Banks offer a menu of rates with different costs or credits Or have seller pay your closing cost
Points and credits are optional features that can help you lower or raise your interest rate. Points are fees that you pay upfront to reduce your interest rate. Credits are rebates that you receive from the lender to increase your interest rate. The more points you pay, the lower your interest rate, and vice versa. The more credits you receive, the higher your interest rate, and vice versa. You should consider how long you plan to stay in the home and how much you can afford to pay upfront when deciding whether to use points or credits.
Always ask an accountant if it makes sense to pay them - sometimes you can deduct the points on your tax return - use to be it would cost you 1% to lower your rate by about .25% - for the length of the loan
Finally, you should also consider the reputation and service of the lender. You want to work with a lender that is trustworthy, responsive, and transparent. You can check online reviews, ratings, and complaints from previous customers to get a sense of how the lender operates. You can also ask for referrals from your real estate agent, friends, or family who have had positive experiences with a lender. You should look for a lender that offers competitive rates and terms, but also provides excellent customer support and guidance throughout the process.
Not only the Bank But the Mortgage Officer - when mortgage Officers are being paid by the loan you want to make sure they are looking out for your best interest. Check their reputation Do you care if they sell the servicing of the loan? Something to consider
Additionally the monthly payment plays a role. The buyer needs to be comfortable with the payment, and many are looking at what they want the payment to be and not necessarily the total amount borrowed and the interest rate. You can always refinance down the road if needed, but you will at least know the payment will not be going up year after year like renting.